Moody's Reaches $864M Subprime Ratings Settlement

Moody’s Corp. agreed to pay almost $864 million to resolve a multiyear U.S. investigation into credit ratings on subprime mortgage securities, helping to clear the way for the firm to move beyond its crisis-era litigation.

Moody’s reached the agreement with the U.S. Justice Department and 21 states, which accused the company of inflating ratings on mortgage securities that were at the center of the 2008 financial crisis, the Justice Department said Friday in a statement. That penalty is about a third of the $2.5 billion that Moody’s earned in the four years leading up to the crisis. Standard and Poor’s, after fighting the U.S. in court for two years, settled similar claims with the U.S. for $1.5 billion last year.

While Moody’s failed to abide by its own standards in rating some securities according to the government, it said the settlement doesn’t contain a finding it violated the law or any admission of liability.

“The agreement acknowledges the considerable measures Moody’s has put in place to strengthen and promote the integrity, independence and quality of its credit ratings,” the company said in an e-mailed statement. “Moody’s has agreed to maintain, for the next five years, a number of existing compliance measures and to implement and maintain certain additional measures over the same period.”

Since the financial crisis, the bulk of government settlements have been shouldered by the biggest banks, which have paid more than $162 billion in fines and penalties. The Obama administration has been criticized for years for failing to hold individuals accountable for misconduct leading to the crisis.

Still, the settlement over ratings by Moody’s Investors Service helps the administration move closer to wrapping up investigations of Wall Street firms for their actions leading up to the 2008 mortgage meltdown, a catastrophe that the Financial Crisis Inquiry Commission said wiped out $11 trillion of American household wealth. The credit ratings industry has been the target of these investigations into Wall Street for years.

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